Angela Merkel’s CDU/CSU has agreed terms for a coalition with the centre-left Social Democratic Party (SPD), German officials say.
The late-night deal follows talks by SPD leaders with Angela Merkel’s Christian Democrats (CDU) and allied CSU.
Chancellor Angela Merkel could be sworn in for a third term in office next month if SPD members ratify the deal.
The CDU/CSU fell short of a majority in September polls, and traditional coalition partner the FDP won no seats.
The breakthrough came after 17 hours of tense negotiations.
The final coalition deal will now go to a ballot of SPD members to be signed off, with the result expected in mid-December.
The German chancellor is expected to present the agreement alongside CSU leader Horst Seehofer and the SPD’s Sigmar Gabriel on Wednesday morning, though cabinet posts may not be announced until after the SPD vote.
Parties reached settlements on issues including a lower retirement age and changes to dual citizenship rules.
The SPD won a key demand for a nationwide minimum wage. An hourly minimum of 8.50 euros ($11.55) will come into force in the country for the first time in 2015.
The parties also agreed that there would be no tax increases, a key demand of the CDU/CSU.
“The work is done. It has been very intense and sometimes very hard work today but I think we have a result that is good for our country which is the main measure, but we can also say the result has a strong Conservative imprint,” said Hermann Groehe, CDU secretary general.
“No new taxes and no new debts.”
The SPD previously formed a grand coalition with the CDU/CSU in 2005-2009.
This time around, the partnership faces the twin tasks of rebalancing the eurozone’s biggest economy and winning the support of the German public to tackle the eurozone’s debt and banking problems.
At the election on 22 September, the CDU took about 41.5% of the vote, the SPD won 26%, the Greens 8.4%, and the former communist Left Party 8.6%.